Local call for tighter tax

Australian digital media companies are urging the federal government to take action in response to global businesses including Google and eBay avoiding taxation, ahead of a meeting for G20 finance ministers and central bankers.

REA Group
and
Nine Entertainment Co
’s digital arm Mi9 have joined
­Carsales.com
in criticising the tax ­minimisation techniques of global technology companies.

Those techniques include directing payments through low-taxing ­countries like Ireland and the Netherlands to reduce tax and reported earnings in what is known as the “double Irish Dutch sandwich".

The G20 meeting includes finance ministers and central bank governors from around the world, as well as ­representatives from the International Monetary Fund and the World Bank.

AFR
AFR

It will be held in Sydney this weekend and Federal Treasurer
Joe Hockey
, who will co-chair the meeting, has made clear the issue of tax minimisation from global companies will be on the agenda.

“All we want is a level playing field," REA chairman
Hamish McLennan
told The Australian Financial Review. ­“Profits are getting siphoned overseas, which profoundly damages the underlining tax base for all Australians.

“We’re talking about hundreds and hundreds of millions of dollars, which could be used for schools, hospitals and important infrastructure." Mr McLennan is also the chief executive of commercial free-to-air television and digital business
Ten Network Holdings
.

It is impossible to confirm Google’s revenue and profit figures in Australia because the company repatriates earnings through offshore operations. But industry sources suggest Google would likely generate revenue of about $1.7 billion in Australia, given it has a 95 per cent share of the $1.7 billion local search advertising market and also generates sales from online display ­advertising. Google Australia said in a statement to the Australian Securities and Investments Commission it earned revenue of $269 million in 2012, ensuring the company paid just $4 million in income tax, after paying $74,000 in tax the previous year.

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The company also said its expenses were about $240 million in 2012, meaning Google Australia could be earning in excess of $1.5 billion. That is more than the traditional media assets – print, radio and free-to-air television - of
Nine Entertainment Co
,
Seven West Media
, Ten Network Holdings,
Fairfax Media
and
News Corp Australia
combined. Seven paid $81 million in tax in fiscal year 2013, while Nine paid $57 million.

As the revenue pool for of advertising dollars available to local media companies shrinks, those businesses will likely be forced to compete more aggressively on price, resulting in further compression of profit margins.

Last year, Seven West Media chairman Kerry Stokes said Google should “pay its share" of tax to the Australian government. Communications Minister
Malcolm Turnbull
also voiced his concerns about tax minimisation techniques employed by global technology companies while in opposition.

Last week Carsales chief executive
Greg Roebuck
complained that competitor
Gumtree
, which is owned by eBay, was not taxed equally to ­Carsales and other media businesses.

Carsales dominates the private car advertising market where Gumtree is its biggest competitor.

Mi9 chief executive
Mark Britt
said it was critical that all companies are subject to the same taxation and regulation requirements.

“We have a huge amount of respect for Google.

“However, they must contribute to Australian society by paying their fair share of tax and competing on a level playing field from a regulatory standpoint," he said.

Local media companies are also concerned about global businesses being exempt from regulation. For example, commercial free-to-air television networks must provide a certain amount of local content as a condition of their license, while online video providers are not restrained by any such rules.

The Convergence Review of 2012, carried out for the former Labor government, had proposed that significant media organisations be branded “content service enterprises" and would potentially be subject to media ownership regulation, as well as content standards and requirements.

Companies that generated $50 million a year in Australian-sourced content revenue would have been considered content service enterprises, meaning Google and Apple “would not qualify", while companies such as Nine Entertainment Co, Seven West Media, News Corporation and Fairfax Media, publisher of The Financial Review, would have been subject to the ­proposed regulation.

Telstra said at the time the concept was unworkable because it would be impossible to identify the Australian-sourced revenue of foreign-based ­content providers.

But the report said foreign ­companies could be forced to supply information about local revenue to the regulator.

A spokesman for Google said: “We couldn’t agree more that international tax reform needs to be addressed at the global level like within the G20 and the OECD.

“It’s an important issue that affects both multinationals that operate in Australia and Australian companies overseas."

A spokesperson for the Federal Treasurer Mr Hockey, said: “All companies must pay their fair share of tax.

“We should have a fair and effective international tax framework for the 21st century – and that is why the government has committed to making this area a priority for our G20 host year.

“It will be a key part of discussions this weekend as Central Bank Governors and Finance Ministers meet in Sydney."